Brewing mergers

SABMiller’s tale

Heroic Aussie beer-drinkers make Foster’s a tempting takeover target

“FOSTER'S, Australian for beer” went one slogan. Oddly, few Aussies sip the amber nectar. In Britain, where it is ubiquitous, it is brewed by Heineken, a Dutch beermaker. Yet Foster's, Australia's largest brewer, looks appetising to SABMiller, the world's second-largest. On September 21st the London-based firm seemed to end a long takeover battle by raising its cash bid for Foster's to A$9.9 billion ($10.1 billion). The Foster's board has recommended accepting the offer.

SABMiller, which has 10% of the global market, will acquire a business that generates barrels of cash. Australians chug an impressive 84 litres of beer a year. (The global average is a shameful 27 litres.) And though Aussies shun the insipid stuff with “Foster's” on the can, they love the company's Victoria Bitter, which is the nation's bestseller. Foster's brews seven of the ten most popular beers in Oz and has half the domestic market by volume, though its share has slipped over the years.

Alas, like most wealthy drinkers, Australians are forsaking beer for wine and other unmanly tipples. The domestic beer market, flat for the past 25 years, has remained so only because of a growing population. SABMiller can probably cut costs; Foster's has been badly run. Its expertise may help to win back market share and its global procurement operation will help to save cash. But as Olivier Nicolaï of UBS, a bank, points out, synergies are limited. SABMiller, which has not done a big deal since 2005, may simply want to join the global trend towards consolidation. It has low debts and lots of cash, so why not?

Because Australia is a mature market, grumble many shareholders. Of all the global brewers, SABMiller has by far the biggest presence in emerging markets. Profits are thinner in such places, but beer drinking is growing healthily. Dirk Van Vlaanderen of Jefferies, a bank, notes that buying Foster's will only drag the emerging-market share of SABMiller's revenues down from 80% to 70% of the total. But growth-hungry investors are still miffed.

Analysts at Collins Stewart, a financial firm, speculate that SABMiller wants to buy Foster's to make it harder for Anheuser-Busch InBev, the world's largest brewer, to swallow SABMiller. Others doubt that such a deal would happen for years, if ever. And for a brewer aiming at world domination, a bigger SABMiller might be an even more tempting target.